China final HSBC PMI hits 7-month low in February

Liang Hong, MD & Head of Research Department at CICC, explains why she thinks China's official purchasing managers index (PMI) is more important than HSBC's factory activity readings.

The health of China's manufacturing sector deteriorated further in February, the final reading of HSBC's Purchasing Mangers Index (PMI) showed on Monday, raising further downside risks to growth in the world's second largest economy.

The February PMI fell to 48.5 in February from 49.5 in January, its lowest in seven months. This is roughly in line with the 48.3 flash reading released last month.

A PMI reading above 50 indicates expanding activity while one below that level points to a contraction.

Stringer | AFP | Getty Images

"The final reading of the HSBC China Manufacturing PMI confirmed the weakness of manufacturing growth," said Hongbin Qu, chief economist of China & co-head of Asian Economic Research at HSBC.

"Signs become clear that the risks to GDP [gross domestic product] growth are tilting to the downside. This calls for policy fine-tuning measures to stabilize market expectations and steady the pace of growth in the coming quarters," he added.

A breakdown of the survey showed firms cut their staffing levels again in February and at the quickest pace in nearly five years due to lower output requirements and fewer new orders.

Meanwhile, input costs and output charges both declined at their fastest rates in eight months. According to anecdotal evidence, relatively muted demand for inputs enabled firms to negotiate discounts on production materials, the bank said.

The HSBC data follows the release of the official PMI over the weekend, which edged down to a 8-month low of 50.2 in February from January's 50.5, but ahead of market expectations of 50.1.

Yoon-Chou Chong, investment director, Aberdeen Asset Management Asia says he isn't giving much weight to the data as it was likely distorted by the Lunar New Year holidays, which began at the end of January this year.

"There are bigger changes going on in China, policy-making wise. You've got things like the anti-corruption drive, focus on pollution. At the moment, how the PMI numbers go, is probably not in the main frame of mind of politicians. There are more things to deal with it," Chong added.